TRIS Rating has assigned a rating of “A” to the proposed issue of up to Bt4,500 million in senior debentures of Minor International PLC (MINT). The new issue rating replaces the issue rating previously assigned on 4 March 2014, following MINT’s request to increase the issue size to up to Bt4,500 million, from Bt3,000 million. At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of MINT at “A”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance MINT’s existing debentures which mature in 2014 and to finance new investments. The ratings reflect MINT’s strong market positions, solid operating performance, and its diversified portfolio of different lines of business and geographic coverage. However, these strengths are partially offset by the company’s aggressive growth and investment strategy and the volatile nature of the hotel industry. The strengths are also counterbalanced by the intense competition and low margins in the quick service restaurant (QSR) and retail trading segments. The “stable” outlook is based on TRIS Rating’s expectation that MINT’s ability to generate cash will continue to be strong. Its future investment needs must be carefully balanced against its funding sources, so that MINT can avoid becoming overleveraged and maintain its credit quality.
MINT was founded in 1978 by Mr. William Ellwood Heinecke. The company engages in three main lines of business: hospitality and real estate, QSR, and retail trading, which includes contract manufacturing. In 2013, the QSR and hotel segments were the largest revenue contributors, comprising 41.3% and 37.1% of total sales, respectively. The retail trading and real estate segments generated 10.4% and 9.6% of total sales, respectively.
At the end of 2013, MINT’s hotel portfolio comprised 19 hotels it owns directly (2,753 keys), 16 hotels owned through joint ventures (896 keys), 44 hotels under management letting rights (MLR; 5,897 keys), and 24 hotels that MINT oversees under management contracts (3,254 keys). MINT’s hotels are located in top-ranked tourist destinations in 13 countries spanning the Asia Pacific region, Africa, and the Middle East. The hotels are managed and operated under well-recognized international brands such as Four Seasons, Marriott, and St. Regis, and its own brands such as Anantara, Oaks, Elewana, Naladhu, and Avani.
The Minor Food Group PLC (MFG), a wholly-owned subsidiary, runs the food segment. MFG, established in 1980, is the largest QSR operator in Thailand. MFG operates four international QSR franchise brands, Swensen’s, Sizzler, Dairy Queen, and Burger King, and four of its own brands, The Pizza Company, The Coffee Club, Ribs and Rumps, and Thai Express, plus Beijing Riverside and Courtyard (Riverside) in China. At the end of 2013, MFG had 814 equity-owned outlets and 730 franchises and sub-franchises located in more than seven countries. Minor Corporation PLC (MINOR) is responsible for the retail trading segment and contract manufacturing under the MINT umbrella. Within MINOR, the key brands are Esprit, Gap, Bossini, Charles & Keith, and Red Earth.
Thanks to MINT’s diversified portfolio of businesses, the company still delivered a good operating performance in 2013, despite a slowdown in domestic consumption and the political instability occurred in the last quarter of 2013. MINT reported total sales of Bt34,669 million, up by 11% from 2012. The QSR segment showed the highest growth among MINT’s business lines. In 2013, revenue from the QSR segment, including franchise fees, increased by 17% to Bt14,309 million. The hotel segment also posted growth in revenue. MINT reported revenue of Bt12,878 million from its hotel, spa, and hotel management fees, a 5% rise from a year earlier. The geographical diversity of MINT’s hotel portfolio helps offset the volatile nature of the hotel industry and minimized the effect of event risks. Political demonstrations in Bangkok, started in October 2013, have not materially affected the company. MINT’s hotels in Bangkok contribute only 7% of MINT’s total revenue. However, prolonged political instability will negatively affect Thailand image as a tourist destination, and may further pressure domestic consumption. Prolonged political instability would affect MINT’s operating performance.
MINT’s earnings before interest, tax, depreciation, and amortization (EBITDA) also grew along with sales. In 2013, the company reported EBITDA of Bt8,363 million, up by 20% compared with 2012. The operating margin, or operating profit before depreciation and amortization as a percentage of sales, remained relatively stable at 17.7%. Leverage improved in 2013, reflecting a larger equity base after the exercise of warrants totaling Bt3,602 million. MINT’s capital structure improved, as measured by the adjusted debt to capitalization ratio. The ratio fell from 56.9% in 2012 to 49.7% at the end of 2013. The company’s liquidity profile, as measured by the adjusted EBITDA interest coverage ratio, improved from 6.1 times in 2012 to 7.7 times in 2013. The funds from operations (FFO) to debt ratio were approximately 25.0% in 2013, up from 21.2% in 2012.
Going forward, TRIS Rating believes that MINT will continue its growth-oriented strategy. The company plans to invest approximately Bt23,000 million during the next three years, from 2014 through 2016. TRIS Rating expects that MINT will utilize its operating cash flow to fund, in part, the new investments. However, MINT will still need a considerable amount of cash, which will be funded by new debt. As a result, the leverage ratio is expected to increase from the current level and remain at around 50% during the next three years.
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